Wednesday, January 26, 2011

as much as i hate to revisit this, im going to review what we've known about QE2 from the beginning...because it isnt working as it was originally prescribed, the Fed and it's apologists have taken to changing their talking points...quantitative easing was first theorized in bernanke's famous helicopter speech, and the theory was built on in several speeches thereafter, as a method whereby monetary stimulus could be achieved when the Fed funds rate is at or near zero already...what QE was supposed to do is LOWER longer term interest rates...the Fed would buy large amounts of medium term treasuries and thereby lower rates along the entire yield curve; that is not happening, in fact, the yield curve between the 2 year note and the 30 year bond was the steepest on record this week...so now bernanke and other officials are citing rising stock prices as proof that QE2 is working; even Fed research has been leant to this cause, leading some to ask when did the Fed get a mandate to manipulate stock prices...other Fed apologists are saying that although nominal interest rates have risen, "real" interest rates (such as you would compute by allowing for inflation expectations) aren't, and that's all the Fed intended in the first place...the "real" interest rate would apply, for instance, if one is saving for retirement; you'd want to keep the purchasing power of your savings intact; but one cant distinguish between real and nominal interest rates with regards to the purpose of QE, because the small businessman wanting a loan or person in the market to buy a home doesnt; payments on a loan reflect the nominal rate...nor will the banks consider the difference between real and nominal when they reset the trillion dollars worth of Alt 1-A and adjustable ARM mortgages over the next two years...nominal interest rates, which are rising, have real consequences for real people; the only consequence of real interest rates is imaginary...

there have been a few interesting developments on the robo-signer/foreclosure fraud front this week; first, a maryland court ruled that all 10,000 GMAC foreclosures signed by jeffery shephan, the first robo-signer who was exposed, were invalid; basically what GMAC must now do is start over from square one on each of those foreclosures, properly prepare & notarize the paperwork, refile a foreclosure notice, offer modifications to the former owners, and proceed from there as if the original foreclosures had never occurred...also, taking cues from the massachusetts ibenez decision, one judge in new york has halted foreclosures, and banks are apparently halting foreclosures of their own volition in florida...in utah, the states laws apparently will not allow for a remote entity (a note in MBS mortgage trust transferred electronically) to foreclosure on property, and various pieces of legislation in virginia would similarly end the use of MERS transfers and give homeowners facing foreclosure a myriad of new rights; there is pushback in Va, however, as a bank board member/representative is attempting to have the uniform commercial code for Va changed to allow for MERS transfers, and thus allow for blank endorsements of property transfers, gutting the normal contract procedures...and in Massachusetts, the Ibanez decision has opened a whole new can of worms, in that the buyers of homes previously foreclosed on illegally may no longer have clear title to the homes they're now in; the Mass supreme court will next be deciding whether these buyers actually own the property they've bought...

there were two major areas of protracted debate on the economic blogs this week; first, with the House GOP repealing the health care reform act, there was considerable debate as to whether its repeal would add to or cut the deficit; to me, this was all just hypothetical, because the action in the house was largely symbolic, since the repeal could never get past the senate, nor a presidential veto...the other area where the economist heavy hitters weighed in was a debate on what was the cause of continuing unemployment, and whether some workers had a "zero marginal product" making them worthless for a company to hire; i have not included links to either of those tete-a-tetes with todays selection, but if anyone's interested, they can navigate to the appropriate section in this week's blog post for the entirety of either exchange...if you want to catch just one, i'd recommend Three ZMPs and two Co-ordination failures by nick rowe, who has a way of simplifying the most complex of macroeconomic ideas...

the above are my weekly comments that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

the measure for purchasing power parity i’ve always used comes from the CIAs world fact book, and according to their 2010 estimates, the US is still #1 @ $14,720,000,000,000, while china is still a distant second @ $ 9,854,000,000,000; my original extrapolation of growth rates had china passing us circa 2014 or 2015, and i see nothing in the cards to alter that assessment yet…

recently, The Economist put together a tool which allows you to plug in growth, inflation & appreciation assumptions to determine when China will overtake the US as the world's largest economy…even using nominal GDP, you can play with this and see it’s pretty difficult to imagine a scenario where the US can remain on top much longer than 10 more years…

this past march, the economist suggested that the yuan was 49% undervalued; so even with the 5% appreciation in the yuan since, it would still be nearly 44% undervalued by their measure today; so to determine today’s purchasing power parity using the Economist’s figures you’d have to add about 78% to the current nominal GDP; obviously, this gadget lets you apply that appreciation gradually over time…

Tuesday, January 18, 2011

i usually dont follow closely the few economic releases that were out this week: industrial production and capacity utilization were both up, but we've had a fairly steady rise in those numbers & and 18 month run in positive ISM manufacturing numbers without impacting factory employment, so until those numbers start to indicate more than potential corporate profits, they're nothing to get too excited about...retail sales were up slightly to a new record, but since it was driven by double digit increases at tiffany's, saks fifth ave, louis vuitton, nordstrom and other high end retailers, punctuated by increases of 35% in sales of cadillacs and 29% in porsches, it appears that was all driven by the same top 1% who will be getting the big obama tax cuts...

QE2 or other monetary policy options arent even being discussed or defended anymore...and only one area where fiscal policy might be impacted garnered much ink, that being the artificial federal debt ceiling, which most expect will be exceeded about March...incoming House freshmen, having campaigned on cutting spending, are rumored to be planning to hold the country hostage, hoping negotiate some non specific cuts...some were worried about the US defaulting on its debt, but it's become clear that the worse that could happen is some vendors may not be paid on time, some benefit checks may be held up, and maybe the troops in afghanistan would have to go without ammo for a while; certainly there would still be enough revenues to pay the interest on the debt and forestall a default...associated with that debate, there were interesting results when two major news organizations, reuters & CBS, polled the public about what should be done; they "overwhelmingly opposed" raising the debt limit even at the risk of raising borrowing costs, moreover, the people also opposed spending cuts to the benefit programs that account for half federal spending, and also opposed any tax increases to balance the budget...foreign aide, at 1% of the budget, was the only cut most people were willing to make...

there were some interesting revelations from the release of old transcripts of the Fed's FOMC meetings in 2005...of what i read, i was struck by greenspan's disinterest in anything that spoke of crisis, often attempting to deflect it with inappropriate jokes that everyone had to laugh at, as he was, after all, the maestro chairman at the time; for instance, in talking about greek interest rates, he asked "can we borrow from the greeks?", or joking about the condition of bear sterns and lehman well before they precipitated the crisis...at one FOMC meeting hearing where the Fed was being warned about the bubble by the Atlanta chairman, who talked about people flipping houses in florida, greenspan abruptly cut him off by calling for a coffee break..

the above are my weekly comments that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

Monday, January 10, 2011

the headline on the jobs report was that unemployment had fallen to 9.4%, but that was largely because of the shrinking of the denominator, as 260,000 americans no longer count in the official statistics because they've dropped out of the workforce, which is now at the lowest it's been in over 27 years, back to the time before women were forced to enter the workforce by anti-labor policies that made it impossible to support a family with just one wage earner...only 103,000 jobs were added, less than needed to make up for population growth....these are seasonally adjusted numbers and i havent checked the exact data, but december is typically an outlier, and seasonal hiring this year was the highest since 07....since the recession ended in july of 2009, we're now well into our second year of recovery; over the past year the economy has only added back 1.1 million of the 8.4 million jobs that were lost during the recession; however, just to create jobs to make up for the increase in the population, we should be adding 1.5 million jobs a year; thus at the rate jobs are being added in this recovery, the labor force participation rate will continue to shrink, and we'll never get out of this hole...

Part Time for Economic Reasons

click on either graph to enlarge

a blog post that had me unsettled most of the week was from a Pew survey that wasnt covered by the lamestream media or the blogs except to quote from the executive summary, which only had some rather general statements about the number who are unsatisfied with economic conditions; the only one who appears to have read the details to the end was dave cohen; and he found the depressing details that 29% are having trouble affording food, and 48% are finding it difficult to pay for electric and heating bills...i posted the results in comments on several blogs early this week, but when i google searched for it, the only places where these details showed up were where cohen's article was reprinted or my web comments; as cohen asks, why isnt this a page one story: 29% Of Americans Say It's Difficult To Afford Food ?

there were a few important pieces of mortgage securitization news this week; first, there was a settlement in the lawsuit of BofA by fannie mae, wherein fannie was attempting to force BofA to buy back mortgage securities it had misrepresented; BofA agreed to pay $1.28B to settle claims on $127B of loans sold by their countrywide unit, setting a template for another bailout of the banks who have been offloading their toxic junk on the taxpayer guaranteed GSEs...the second was an important ruling by the Mass Supreme court that the "one size fits all" automated securitization transfer process developed by the banks does not meet the requirements of massachusetts real estate law...the unanimous decision acknowledged that the borrowers were in default, but the foreclosures were invalid because the banks didn’t prove they owned the mortgages in question, in that the note and deed were not properly conveyed properly to Wells Fargo & US Bancorp in accordance with Mass. law; the ownership of the properties was thus returned to the defaulted borrowers...

with the caveat that this only applies in one state so far, the banks have been told that if they want to take people's mortgages & create a multitude of financial products to create income streams for investors in those products and skim off profits on the side, they still have to treat the mortgages as titles to a person's home...they have to keep the paperwork in order, and each step in the many transfers in their securitization process must be accompanied by complete paperwork...without the properly notarized paperwork, foreclosures are invalid because none of the banks can prove they own the mortgages...

the adjacent chart is an update to a chart i used in a post last year: banks insolvent? extend and pretend… although the subprime loans criris which was responsible for most of the toxic MBS assets now on the banks books played out in 2008 & 2009, there are still over a trillion $ of option ARMS (adjustable rate mortgages) which will reset as indicated over the next three years...as long as interest rates remain low over this period, there shouldnt be much of a problem will ballooning housepayments, but it's just something to watch for in light of the fact that interest rates have spiked in the face of the Fed's best efforts to keep them down... (this updated chart from SNL Financial : Credit Suisse: $1 trillion worth of ARMs still face resets )

in the change we can believe in department, obama appointed bill daley as white house chief of staff, in order to improve his relations with the banksters...daley, the son of ex-chicago kingpin mayor richard daley, was the former right hand man of JPMorgan chief jamie dimon; he has opposed health-care reform and opposed the creation of the Consumer Financial Protection Bureau and worked for the Chamber of Commerce in attempts to loosen post-enron accounting and auditing rules...elizabeth warren is now engaged in a search to find someone acceptable to head the CFPB...also, former goldman sachs exec & clinton rubinite gene sperling, who negotiated the tax cuts for the rich, will take over for larry summers as head of the national economic council, and paul volcker was shown the door...and as the door revolves, former chief of staff rahm emanuel goes to chicago to try to take richard daley's old job...it should be clear to anyone watching by now that it has hardly mattered which party has been in the white house, its still run by the banksters...even the clinton administration was the one that initiated the financial deregulation that got us into this mess, twice reappointed alan greenspan, promoted free trade polices to the benefit the corporate globalists, and started the shredding of the new deal welfare safety net; they even talked about privatizing social security...and after this years "Citizens United" supreme court ruling that gives corporation unfettered control of campaign finance, control of the government by the plutocracy is only going to get worse...

there were also a couple disconcerting scientific studies in the news this week; first, four major species of bumblebees have been documented to have declined 96% over the last 20 years, and their range has declined by as much as 87%...since they fly at cooler temperatures than the already depleted honeybees, a new range of native plants can be considered threatened...at this rate, we'll all be limited to a grass & pinecone diet eventually...the other study found a "drastic" shift in north atlantic currents, most notably the cold labrador current, which interacts with the warm gulf stream near new england...together they have a complex interaction with weather in north america, and especially europe...a decrease in gulf stream flow could mean much colder winters for western europe...

the above are my weekly comments that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

Saturday, January 8, 2011

Tuesday, January 4, 2011

it was a fairly slow week, as several bloggers took all or part of the week off, others cut back on posts, and still others did retrospectives or predictions, which for the most part i dont cover...the major economic release of the week was the case-shiller home price index for october, and the composite for 20 major cities was down 1% from the previous release, and 30.5% off the peak...since even the WSJ called it the "december update" without clarification, it's worth noting that this is a lagging index, in that that the months measured by it are actually aug, sept & oct, and the home prices referenced are only logged after reported by the deed recorders, so it's basically the average prices houses exchanged at in late summer...so for the most part we're seeing prices as influenced after the home buyer tax credit expired, but before the robo-signing mortgage fraud crisis hit & while mortgage interest rates were at their lowest, before the impact on rates of quantitative easing & the big spike caused by the tax cut package...

a report out from The Center on Budget and Policy Priorities is highly critical of the new changes to House rules to be instituted in the incoming session; first is a change in the pay-as-you-go rules that will no longer require proposed tax cuts to include offsets so that there's no increase in the deficit; there's also a similar change on treatment of tax cuts in reconciliation procedures, another rule that proposed mandatory spending increases could only be offset with reductions in other mandatory spending, not taxes, as well as a number of potentially huge deficit increasing policies to be adopted without offsets, including in an expansive re-definition of "small business"...

first time claims for unemployment were reported at at 388,000, the lowest since july 2008, extending the string of lower reported new layoffs; the only caveat to that is taking out the seasonal adjustment, new claims were actually up 25K to 521K...its hard to call a trend at this time of year, when seasonal adjustments occasionally skewer the numbers, but if the adjusted decline continues, we may see the total unemployment rate start to drop going forward...

there was some excitement early in the week among the doomer contingent of the blogosphere when economist paul krugman put his imprimatur on peak oil, saying that as oil production has not increased over 4 years, peak oil had arrived...but as important as it was to have a leading economist recognize and write in a widely circulated newspaper that the world's resources are finite, i think its equally important to understand the context in which he wrote about it...for several weeks he has been writing in defense of the Fed's policy of quantitative easing, saying that it was necessary to head off deflation, and comments on his blog as well as criticism elsewhere was that the disinflation he saw was a myth; so in at least a half a dozen posts he's tried to show the disinflation story, complete with all kinds of charts...but the pushback continued, with many critics pointing to rapidly rising commodity prices...so his "peak oil" post, "The Finite World" was to answer those criticisms & should be seen in that light; sure, he's writing that our resources are finite, but his closing reveals that his reason for writing was still in defense of QE2: "rising commodity prices are basically the result of global recovery. They have no bearing...on U.S. monetary policy...this is a global story...it’s not about us."

of interest to climate watchers, earlier in december, while the central US, europe and china were all in the grip of well below normal freezing weather, the extent of the arctic sea ice was actually decreasing; and receded to the least ever recorded for the month...the phenomena is even more remarkable when one realizes that at this time of year, much of the area above the arctic circle receives no sunlight...

the above are my weekly comments that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, mostly from the aforementioned GGO posts, contact me...

note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....